Sunday, 22 January 2012

Home Rule All Round!

Foreword

You can’t write a piece like this without influences. It is underpinned by knowledge gleaned from everybody from Karl Marx in 1848 to Brian Ashcroft last week. (The latter article interestingly is followed in the comment section by one Nationalist comment that this is “drivel, unionist lies and statistics”!) It would be invidious to single any one text or person out as particularly influential to my thinking but it is equally inappropriate to claim it all as my own. At best I have simply tried to bring together that part of the thinking of others with which I most agree.

In the end however all conclusions are my own. I am not cover for some prodigal son or daughter who will return to lead Labour in Scotland at the appropriate time; less so still for any Demosthenes I anticipate arising from the ranks of the School of Athens which is the Labour Holyrood Group. And if there is a King or Queen over the water they have not made themselves known to me, let alone contributed to what follows.

I am sufficiently conceited nonetheless to think there might be some wider dissemination and discussion of what I have to say. Just remember when doing so that the one guarantee that this will never become the policy of the Labour Party is the fact that I have said it!

But in one crucial way this document is the responsibility of the Scottish Labour Leadership. I am a real partisan of the Labour Party and would normally do nothing to provide any succour to the SNP. I appreciate however that some will spin this contribution as doing just that.

Last Thursday however the exchange at First Minister's questions consisted of Johann demanding to know what the SNP Administration proposed to do about rising unemployment. Eck replied repeatedly that he was doing all he could within the Parliament's existing powers. He's not, even remotely, indeed he's making things significantly worse.

But "Scottish Labour's" Five Point Plan for Jobs produced in the aftermath of this depressing exchange consisted of proposals which are outwith the competence of the Parliament and a fifth which the SNP are doing already and which, when they put it in their budget, we opposed. I am simply at a loss as to what to make of this.

The immediate initiative of the new leadership has been to smother any possible policy initiative against meaningless promises of Party Reform, which, based on past experience, will themselves come to nothing in due course. To be fair, that was the platform on which Johann was elected.

So, I might as well get on with it myself. I'm not getting any younger. I neither have the time nor the patience to wait another five years and it might shame them into doing something. I won't however be holding my breath.

A Proposal to improve the Devolution Settlement

Constitutional reform is not easy. That’s the reality of reform within the United Kingdom but it is equally true of whatever is now meant by Independence.

When the SNP was founded there was a recent example of a Country leaving the United Kingdom, in the form of the Irish Free State. It was clear what that meant then. One’s own currency (at least in appearance), tariffs against English goods, a cultural boycott of England, a belief in the innate value of “going your own way” even at a very considerable economic price.

Most of those who founded the SNP were essentially attracted by a Presbyterian version of that model.

There are however and of course huge differences between, on the one hand, the historic relationship of England and Scotland and, on the other, the relationship between England (let’s be honest, mainland Britain) and Ireland. That was one of many reasons that Scottish nationalism never flourished on the De Valera model (except perhaps in the field of poetry!) but even in the 1920s the separation of the integrated economies of Scotland and England (never mind the Empire we were then running together) would have been a much more complex issue than the separation of the British economy from the much less developed, essentially agrarian, economy of Southern Ireland.

But nationalisms change. “Ourselves Alone” failed as an economic and cultural model. The only thing Ireland found itself exporting was people; its only growth in misery. Sean Lemass and then much more significantly with accession to the European Union, Garret Fitzgerald, realised that to prosper in the modern world you had to engage with the modern world.

There was and is however a certain legacy left. Certain symbols of the past that, once heroic, then quaint, slowly began to look anachronistic. It would be interesting to consider when the Queen visited Dublin last year whether it was not she, the 84 year old hereditary monarch, who actually looked a more modern figure than President Mary McAleese.

The same developments can be traced within the ranks of Scottish Nationalism. It is, of course, a much more modern and inclusive party than it once was. Excepting the national question, most of its younger activists hold political views indistinguishable from the younger members of my own Party.

But the SNP also has a legacy. It is readily remembered that De Valera infamously signed the book of condolence at the German Embassy following the death of Hitler. Such had the doctrine that “England’s enemy is my friend” become distorted. It is more readily forgotten (indeed when I referred to it once on Twitter it was clear many in the modern SNP had no idea what I was talking about) that during that epic struggle to defeat Nazism, much of the leadership of the SNP took a similar view. Not that they were Nazis themselves, but that such was their tunnel vision commitment to the “cause of Scotland” that even the defeat of Hitler was to take second place.

It is inconceivable the majority of the modern SNP would now take that view. However, although Eck must know this wartime stance was fundamentally wrong, he has never found it within him to condemn it and apologise for what happened as he knows that there remain some in the SNP who hold to such priorities today (and who incidentally think Arthur Donaldson and Douglas Young were victims of an English conspiracy to blacken the SNP; just watch, the comment section to this blog will bring them out).

The other legacy the modern SNP have inherited is a more problematical one.

At least since they embraced “Independence in Europe” and recognised that an “Independent” Scotland and England would remain not only in a common economic area but within a framework, albeit with others, of common decision making, the SNP have not really been in favour of Independence in the way Independence was envisaged by their founders. You can still see some dim and resentful appreciation of this in the views of some of their older members muttering that we’ll only be in the EU as long as we want to be. There of course also remains the bizarre suggestion at the top of the SNP that we’ll be in the EU but not in the Common Fisheries Policy. This is surely no longer a question of base politics fishing for votes on the NE seaboard. It involves an unwillingness to confront no reluctant constituency other than some of the membership of the SNP itself that true “Independence” is no longer what the Party stands for. The same applies to the continued unwillingness to reverse policy on withdrawal from NATO. NATO membership is a recognition that Britain cannot guarantee her own defence, never mind Scotland. Continued commitment to withdrawal from NATO can only be rationalised on the basis that there remains a part of the SNP membership, too large to confront, who do still believe that Independence means cutting ourselves off from the world.

So, this mindset is more, much more, of a real factor in Scottish politics than is realised, not least by the bright young things so themselves caught up with modern, inclusive, civic nationalism.

I tried to illustrate this dilemma when I wrote about how Salmond had clearly cut his own cut his own 2011 Conference Speech because even he, the great leader at the height of his triumph, hesitated to speak the truth to his own Party.

It is most obvious however in the continued commitment to an Independence Referendum. It is farcical that the SNP themselves still can’t define Independence but then again it is also farcical that the Labour Party can’t define socialism. That’s politics.

What is more absurd is the suggestion that we’ll have a referendum for or against this nebulous concept even as we’re successively assured only what it won’t involve: a closed border; a different Head of State; a different currency; even a different national broadcaster.

Nonetheless to be against this, whatever it is, is to be “anti-Scottish”. Further, while for those in favour of Independence (quote/endquote), Independence can be what you want it to be, somehow it is to deemed illegitimate to suggest that Independence might turn out to be the stuff of your worst nightmares. Endless Neil Oliver kailyard documentaries interspersed with re-runs of old Alexander Brothers Concerts.

I continue to doubt that this “Independence” will ever be put to a vote but if it is it will be decisively defeated, not least because it is opposed by a very considerable part of the SNP’s electoral support and even, whisper it, by a significant part of the SNP’s own membership. In any event, if you’re voting for something you can’t define...............?

What is indisputable (and definable) however is that the SNP are unanimously in favour of (at least) the maximum possible freedom of action in the economic sphere which is possible without having your own currency and while remaining party to the treaty regime of the European Union.

What might surprise them is that so are many of us in the Labour Party. Now that doesn’t mean we are in favour of Independence. I’m happy to put my record on the Party’s Home Rule wing up against anybody. I am proud that I was once asked by the NEC where I would stand if the interests of Scotland conflicted with the interests of the Labour Party and denied the chance to be a Labour MP as a result of my answer. I have however never met a member of the Labour Party who is in favour of Independence. There are any number of reasons for that beyond the nebulousness of the concept. It simply starts from the wrong place: that different means better. And if you believe you are better then somebody else is logically worse. That’s just not our thing.

Accordingly, sheer partisanship makes it attractive to contemplate sticking to what we’ve got constitutionally. To encourage the SNP to bring the fight on in the knowledge that they will be “crushed under the wheels of our tanks” (current official Scottish Labour Party policy), or, more likely, be seen to be obviously running away and mocked, albeit it to no particular purpose, in the process.

I am aware that Labour is anxious not to create the impression that the SNP are somehow the midwives of an improved devolution scheme but I have concluded in the end that short term political considerations cannot be allowed to prevent us saying what we stand for (or at least would stand for if I had any influence........which I don’t). Anyway, if we are being honest, support for the Nationalists has always been a factor in creating space for the devolutionists. Wendy Alexander conceded as much in her, unwisely neglected, 2007 St Andrew's Day speech. That was among the reasons her leadership was sabotaged from within.

Anyway, it's easy to be a critic.

Since I've started on this blogging lark, from time to time people have challenged me with the question: "What would you do?"

And I myself have also in the past commented on the inadequacy of "Something different" as an answer to that question.

The most insistent question has come on the question of my own preferred devolution scheme and I've finally been sufficiently embarrassed to attempt to answer that.

Before I continue, a number of caveats.

I am assuming that the vast majority of my readers are steeped in the statistics of Scotland's relative public expenditure spend and fiscal contribution. We all know where we agree and we'll know where we'll disagree. I'm attempting to win no arguments in that sphere here, so I've not gone to the bother of quoting sources for any of what I say. Suffice to say, I believe they are available and if I'm mistaken I'm mistaken in good faith.

Secondly, although to some extent I come to bury Calman not to praise him, my actual task becomes as complex as that quotation is within its context. The fiscal powers section of Calman is well worth reading again. Although the dead hand of the Treasury lies across its entire provisions with unexplained technical or administrative difficulties relied upon time and time again as an excuse for inaction, it sets out some of the genuinely problematical issues that arise in relation to devolved and assigned taxation within the context of a unitary state but also within the constraints of the European Single Market. Obviously I think Calman was too conservative in its conclusions but nobody disputes this technical analysis. At best critics just put their fingers in their ears and start humming Flower of Scotland, or deride it as “drivel, unionist lies and statistics”.

Thirdly, I remain of the view that the reason the SNP won as big in May had very little to do directly with a demand for constitutional change. It had much more to do with a desire for a competent government, which only the SNP truly had on offer, and a desire for the Scottish Government to do more (to be fair, perhaps to be able to do more) to address the condition of Scotland. If that required constitutional change then the electorate was content with that but a desire for constitutional change per se was not the reason for their vote.

Finally, and most importantly, Devolution is an agreed settlement between Scotland and the rest of the UK. I blogged months ago about the application of Trotskyist transitional demand theory to some of the SNP's politics. The sort of deal that involves us having all the advantages of boom years in oil revenues (classic devo max) but still being able to fall back on the UK if it all goes horribly wrong; or indeed which allows us to share an army while having a veto on its deployment(Indy-lite) has little to commend it to the rest of the UK. It might just be sellable as compromise through the pages of Newsnet. It won't wash in the real world.

So, Devo plus has no place in a referendum. It cannot be demanded unilaterally and if it is an agreed deal it need not require a vote. Nor need it be framed so as to defeat a yes vote to independence. Every reputable poll ever published confirms there is not going to be a yes vote to independence. Indeed, because nobody knows the truth of that better than the SNP, if there is even a vote on the issue at all called by the current SNP administration I will remain considerably surprised. Only the fact that they have boxed themselves into a corner by naming a date gives me any cause to doubt that. To that extent, well done David Cameron. My worry is however that by putting all their eggs in the one basket, the SNP will leave us with nothing, except egg not still in the basket but rather all over our face. They, the Government of Scotland, need to negotiate with Westminster over what might reasonably be available by agreement. No amount of appealing to others for a different receptacle for some of their eggs excuses their own inaction on that front.

So, what do we want by devo plus? I've already answered that question. We want to be able to address the condition of Scotland. And in what ways does the current devolution scheme preclude that? It does not preclude it as comprehensively as past Labour Administrations, anxious not to differ themselves unduly from parallel Westminster Labour Governments made out. Nor indeed as SNP administrations, anxious to blame the constitutional settlement for their own timidity, would have you believe.

But

There are three central flaws in the current settlement. Firstly there is no proper accountability. "We don't have the money" is an easy complaint when (even before John Swinney gratuitously gave it away) a variation on (only) the basic rate of income tax or a misuse of local government taxation for other ends were the only true revenue raising opportunities available.

Secondly, there is no reward. If the Scottish Government made sacrifices in other areas of public expenditure in order to pursue an immensely successful industrial strategy they would have taken all the pain without a single extra penny of the gain excepting any fraction they might inherit through Barnett formula of an overall increase in UK GDP. That's not what devolution was meant to be about.

Thirdly, real public expenditure in Scotland is invested hugely in the benefits system. Any real control on the supply side requires us to be able to tap into that.

I want to illustrate this with two hypothetical (and exaggerated) examples. First, the left example. FDR becomes leader of a Labour administration at Holyrood and decides to embark on a "massive programme of public works". Using the existing borrowing powers of local authorities, hundreds (well, tens) of new schools and community facilities are created. Thousands of new jobs are created. Unemployment benefits are greatly reduced and income tax receipts soar. At the end of this however the Councils still have the debt and not a penny of the additional revenue to help them pay it. Then the right example. IDS is leading a Scottish Tory administration. They decide that some idleness at least is willing idleness so they (never borrowing) create a system of workfare paid for by re-introducing tuition fees. Nobody however turns up for this work as they're all quite happy watching Jeremy Kyle. The Scottish Government has spent the money (and lost the student vote) but any effective sanction lies with Westminster.

It is regrettable that state Benefits form such an important part of Scottish public life but they do. So, as a starter, benefits need to be devolved. By that I mean all benefits except, as much for practical reasons as anything else, accrued but unfunded retirement pension obligations, whether they are in respect of the basic state pension or, indeed, those of the NHS and Civil Service Pension scheme. Pension credits could however be devolved.

This all however remains, ultimately, in the sphere of expenditure. What, I hear those of you still awake crying, about income?

Well here, again, I need to go off on a bit of a diversion.

I believe in social solidarity. Nothing annoys me more than those who boast, within London, as to how much of the UK tax take derives from the City of London, and should therefore be spent there. Why then should I be any happier with a similar argument about North Sea Oil?

You might as well say that since I, touch wood, keep, reasonably good health, why should my taxes be paying for my next door neighbour who's never out the hospital? I've got no kids so why should I be paying for anybody's education? I don’t live in the far Highlands so why should I be subsidising their postal charges?

The answer is of course not socialism but simply civilisation. Certainly there is a hypocrisy in this or none of us in the rich west would be enjoying the lifestyles we do, but in the end we form a far from scientific view about those who are our neighbours and those who are not.. For all the verbiage that surrounds "post nationalism" the essential divide comes down to that. Not between those who believe we'd be better off without England & Wales and those who do not; rather between those who believe we'd be better off without England & Wales and those who do not think that should be the question in the first place.

So, anyway, back to the big issue.

Scotland needs a revenue solution that enables us to reflect the priorities of the domestic government we have elected; that rewards that government for its success but also punishes it for its failure. That recognises also however that we have chosen to remain part of a United Kingdom and accept the responsibilities that go with that. The right to be different does not equate to the right to an unfair advantage or to behave like the proverbial tail wagging the dog.

Here, I think, is where Reform Scotland go wrong. Devolved Government needs a revenue mix but so does Central Government. The idea that all income tax should stay in Scotland but all VAT at Westminster restricts the revenue raising powers of both administrations.

Income Tax was first introduced in response to the external threat of Napoleon. We are for the moment exempt from such threat but it would be wholly unacceptable that a modern required response of that nature affected only England & Wales. Or indeed that, even if Scotland was inclined to chip in, we couldn't raise the money through Inheritance Tax instead, if we believed that to be fairer.

The solution I propose is complex, I accept. But any solution, even Independence in Europe is complicated. You don’t need to have a view on whether an Independent Scotland would automatically be a member of the EU to recognise that the (continued) terms of that membership would require negotiation over the exact number of votes we’d have in the Council and Parliament or over the extent of our contribution to European central funds. Even if we keep the pound sterling, this will require negotiation on how we physically lay our hands on the currency. And if there’s still to be the BBC we’ll nonetheless need negotiation on exactly how much Neil Oliver we really want. (Perhaps we could have a separate referendum on that.)

And that’s before you even start on how you entrench a hereditary Monarchy within a written constitution.

So when I say my scheme is complicated, it is no more complicated than any other and, I believe, in a digital, internet age, it is far from unworkable.

It proceeds from the central principle that most major taxes collected in Scotland should be assigned to Scotland and then apportioned between Scotland and the United Kingdom much as Calman proposes for Income Tax rates alone. Tax rates and allowances in respect of the assigned portion should then be devolved when possible. Assignation based on receipts was dismissed by Calman in a single sentence as "administratively burdensome". No evidence was adduced for this but, even if it is, well that will just have to be how it is.

There is an important difference however between assignation and devolution of taxation.

You have to accept that within a unitary state not all taxes are appropriate for devolution. Some cannot be internally varied within member states under European Union Law. Most obviously that includes VAT and, according to Calman, it also includes fuel duties.

Other taxes are legally devolvable but inappropriate for devolution. Those which are not devolvable are essentially those which leave themselves open to a choice over where they are paid. These include, regrettably, excise duty. Drink and cigarettes would simply be bought on whichever side of an open border they proved to be cheaper, perhaps even over the internet. They also include Vehicle Excise Duty which would otherwise lead to it being paid on fleet cars and hire cars wherever it attracted the lower rate. The Vehicle excise example also applies to Corporation tax. Ideally it would be paid where it is earned but in practice it is paid where it is declared. The SNP model of Gretna becoming some sort of new Bahamas, where Companies trading overwhelmingly in England declare their profits under a lower Scottish Corporation Tax regime is not only morally offensive, it is incompatible with a unitary state, as the Nationalists well know. At the danger of descending into minutiae there would in principle be no objection to a variable Corporation Tax rate applying to businesses trading exclusively in Scotland, as applies in the Basque Country, but I do wonder if that’s worth the bother. All of these taxes however, although not devolved, would nonetheless be identified at the point of payment and then assigned in a, permanently legislated for, proportion to the Scottish Government.

In doing so, you need to recognise that in respect of some smaller but very geographically specific taxes e.g. Inheritance Tax; Stamp Duty Land Tax; perhaps Air Passenger Duty, these could be assigned and devolved but that “split” apportionment is probably not worth the bother. These could simply be apportioned to Scotland at a level of 100%.

That however leaves you with the big players (in apportionment) devolved. Income Tax (and CGT); National Insurance; Petroleum Extraction taxes.

Now here is where I depart big time from Calman. This basket of taxes, once hypothetically assigned should then be apportioned to Scotland in such a way as gives us a starting point of producing equivalent revenue as is required to match the current expenditure of devolved government (together with the additional responsibilities I have outlined above). (For the avoidance of doubt that might, probably does, involve variable rates of apportionment of individual taxes). That might be a crude starting point but if it locks in unfair advantage to Scotland at its starting point (as some critics would claim) then at least what we made of that legacy would be for us alone. The block grant would be no more and there would be no renegotiation based only on a “needs based” appeal. Having made our bed we would need to lie in it. We are told that’s what people want.

I’m by no means convinced of the technical difficulties that Calman identifies in either the devolution of income tax rules or allowances. That seems to me to be no more than a matter of tax codes. I’m also not clear that the potentially variable taxation of unearned income is as difficult as is suggested by Calman but, I accept, some further technical assessment might be required here.

Scotland would also be given the express right to levy completely new taxes if an an electoral mandate could be secured. In this area I have regard particularly to possible behavioural taxes and/or green taxes.

But back to my main thesis. There would need to be a shadow, possibly transitional, regime to ensure that advance estimates of current take had not been miscalculated, much in the way that the current Scotland Bill anticipates operating for Income Tax, but that should not be technically beyond HMRC’s super computers.

There would also need to be one very important dispute resolution mechanism set out in legislation.

Westminster would in future be setting (e.g.) two income taxes. A UK tax and a peculiarly English & Welsh Tax. There would have to be an agreement that, for example, an increase in English & Welsh disability benefits would only be funded from English & Welsh taxes. Such a crude example is unlikely to arise but the ability to characterise, particularly, infrastructure investment in London as being “National” expenditure has a long and dishonourable past. If there was a dispute resolution mechanism with the ability to highlight that I suspect it would be as welcome in Cornwall and Durham as it would be necessary to Scotland. We need however to be careful with our rhetoric here. It has cost a very great deal of money to keep RBS on the road. If that money was spent for the benefit of the whole UK then it would still have been spent in the interests of the whole UK even if the Bank had been based in Eastbourne rather than Edinburgh. And while HS2 from London to Birmingham might bring little benefit to Scotland, if it doesn’t get to Birmingham it will never get to Manchester. And it never gets to Manchester it will, most certainly, never get to Scotland. That’s all I’m saying.

There is however one final point before I leave this issue. It is common territory across political and economic opinion that we have a crisis over the current fiscal deficit. It goes without saying that under my scheme the handling of that deficit would remain within the province of the British Government and that both the paying down of that debt and the servicing of the interest pro tem would be British expenditure paid for out of British taxation. The reality is however that paying the income and capital on that debt is, in itself, a significant element of current public expenditure. On the happy day the deficit is eliminated (I am writing hypothetically here) not all the savings made will be passed back to taxpayers in the form of tax cuts, even by a Tory Government.

In the process however there is likely to be a switch, under my model, from “British” expenditure to expenditure solely in England & Wales. That will need a transparency in the public finances that neither the Treasury or the politicians will like, particularly if one “bit” of (e.g.) Income Tax is actually going up as the other “bit” goes down. Tough.

As for borrowing powers, Calman’s OK in my opinion. It is simply unrealistic in this day and age to operate “Keynesianism in one country”, even (as Mitterand found) in a much bigger country than Scotland and particularly without access to interest rate, exchange rate or money supply levers. If we wish to remain part of the UK we need to accept that macro-economic policy is for the British Government and hopefully increasingly for the European Union. If we in Scotland are going to influence our economic performance that influence needs to be on the supply side. We need borrowing powers to smooth infrastructure investment but to engage in strategic demand management in isolation from our single biggest markets? Don’t be silly.

Finally, we should complete the devolution of private and criminal law. It is a disgrace that all of our politicians conspire to avoid difficult decisions on abortion by conspiring in its continued reservation. The same applies to the Misuse of Drugs Act and the Road Traffic Acts.

So, that’s it. My scheme. Not simple to understand or, I suspect, to easily sell on a public platform. But, as I said at the very start, constitutional reform is complicated. “Independence” would be complicated as the SNP themselves are slowly realising or, to their own backwoodsmen at least, disclosing. That’s both the beauty and the triumph of the constitutional architecture of the 1998 Act. It not only provides a solid structure, it provides one which can be built upon. It would be an act of vandalism to knock that down and start again.

My own proposal contains nothing however that could reasonably be regarded by “Unionist” opinion as incompatible with continued membership of the United Kingdom, except in one final aspect. Can we continue to have Scottish MPs voting on exclusively English & Welsh tax rates and benefits? We’ve survived that anomaly in relation to health and education since 1999 but that, in the end, has to be a matter for the English and Welsh themselves.

Finally, I accept my scheme is not Independence, at least in the eyes of some. But then I don’t believe in Independence. I’m a devolutionist. Always have been. But I’m also a bit unhappy with the term “Devolution”, technically correct though it is. One of the welcome and irreversible achievements of the SNP has been to transform the appellation of the political administration at Holyrood from “Scottish Executive” to “Scottish Government.”

Perhaps its time for those of us anxious to promote a strong Scottish Government within a continued United Kingdom to reclaim another too seldom used term for what we propose.

3 comments:

K.I.S.S. Iain.Tinkering with Calman appeals to a diminishing sector of unionists. As an ex Labour voter IMHO its the Party that's selfish not pro Indy voters. A party that supports the Tories destroying the NHS has no credibility left/right.

Iain your reading of history conveniently airbrushes out the Labour Parties hostility to Scottish Home Rule. In 1913 Home rule was supported by the vast majority of Scottish MPs and it was the rise of the Labour Party and the decline of the Liberals that led to wasted decades when Scotland's government could be much better suited to her needs. The Labour party has very little to be proud of, and their dominance in Scottish politics is now thankfully gone for good, as I'm sure you are aware. Given its record it would be totally disingenuous for Labour to try to assume the mantle of Home Rule. The critique of Labour's historical record on home rule is going to become more widely appreciated as the reaction your proposals should they ever be adopted.

I feel I have been educated by reading this. Thanks Iain. You make an extremely convincing case on taxation, have made me think hard on borrowing and other executive powers, and you leave me deeply depressed about the prospect of any national debate being able to address these complexities effectively - let alone a referendum bring able to decide on them. That in turn makes me worry that the apparent simplicity of "independence" could make it a more attractive option for those who would really favour a settlement more akin to yours.